US & World Daily Markets Financial Briefing 25-09-2007

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Wall Street falls on consumer worries

NEW YORK - Wall Street pulled back Tuesday as investors got fresh evidence that consumer spending is slowing amid the worst housing slump in more than a decade and continued erosion in credit markets.
   
Traders were hit by a series of negative reports from companies that are considered barometers for the economy.
   
The retailers' Target Corp. and Lowe's Cos. trimmed their expectations for the year because of slowing sales, while homebuilder Lennar Corp. posted a fiscal third-quarter loss and sharply lower revenues.
   
The disappointing corporate news set a nervous tone as stocks opened, and investors began to entrench ahead of several economic reports due at 10 a.m. EDT. Data on existing home sales and consumer confidence could be key indicators to gauge the pace of the economy.
   
These reports take on even more significance as Wall Street speculates about what the Federal Reserve's next move will be after last week's half-point interest rate cut. Even with this cut, stocks declined on Monday after the International Monetary Fund warned of "protracted" economic instability around the world.
   
In the first half hour of trading, the Dow Jones industrial average fell 61.78, or 0.45 percent, to 13,697.28.
   
Broader stock indicators also declined. The Standard & Poor's 500 fell 9.56, or 0.63 percent, to 1,508.17, while the Nasdaq composite lost 11.13, or 0.42 percent, 2,656.82. The Russell 2000 index of smaller companies fell 7.35, or 0.91 percent, to 798.45.
   
In European trading, Britain's FTSE 100 fell 1.01 percent, Germany's DAX index fell 0.73 percent, and France's CAC-40 fell 1.06 percent.
   
Bonds prices rose, with the yield on the benchmark 10-year note falling to 4.57 percent from 4.62 percent late Monday.
   
Oil prices continued to slide, with a barrel of light sweet crude down $1.66 to $79.29 on the New York Mercantile Exchange. Crude typically can fall on reports about lower consumer spending.
   
Stocks in focus

Lennar shares fell $1.15, or 4.8 percent, to $23.03 after it posted a loss of $513.9 million, or $3.25 per share, for the third quarter as revenue fell 44 percent.
   
Also, two of the nation's leading retailers -- discounter Target and home improvement merchant Lowe's -- cut their sales forecasts for the year because of uncertainty about the upcoming holiday shopping season. The warnings came after the closing bell on Monday.
   
Target fell $2.93, or 4.6 percent, to $61.37. Lowe's declined $1.40, or 4.6 percent, to $29.15.

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Pound pushed lower by swathe of bad news

LONDON - The pound was lower against the dollar and the euro, as a spate of gloomy news deepened its fall against the US currency following yesterday's peak.
   
The pound surged against the dollar last week, in line with other currencies, after the US Federal Reserve Bank cut interest rates by a half-point to prevent excess damage to the economy from a sub-prime mortgage crisis and financial market volatility.
   
The pound hit a nine-day high of 2.0316 yesterday as investors speculated about more Fed rate cuts to come. However, its decline since then has been fairly sharp, coinciding with a batch of sterling-hostile news.
   
Concerns over the UK financial sector were fuelled by a report in the Independent newspaper that the Financial Services Compensation Scheme, which British banks use to guarantee deposits, contains just 4.4 mln stg.     

Further warnings came from the International Monetary Fund, which signalled that the UK could see similar problems in sub-prime mortgages -- those taken out by people who do not qualify for standard credit -- as the US has done.
   
Elsewhere, the dollar's recovery since yesterday is expected to be short-lived.
   
Analysts at BNP Paribas said that, in terms of the dollar/euro, the differential between both official and money market interest rates in the US and Europe should hurt the US currency, causing it to shift from a 'yielding' to a 'funding' currency and further undermining its support.
   
US data today will give further signs of how the economy is performing after the summer's turbulence and the continued decline of sub-prime lending. US consumer confidence is expected to fall to 104.5 in September from 105 in August, and existing home sales should fall to 5.445 mln in August from 5.75 mln the previous month, according to forecasts from Thomson IFR Markets.
       
And the yen was markedly stronger as unwinding of carry trades continued, a risky strategy where investors sell the yen to fund asset purchases denominated in other currencies.

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Euroshares down midday, breather after last week's rally, US futures weigh

LONDON - Europe's leading exchanges extended losses midday, pulled by a lower than expected Ifo economic expectations index with a bleak outlook on Wall Street also weighing on sentiments.
   
At 12.07 pm, the STOXX 50 fell 43.61 points or 1.14 pct to 3,776.32, as the STOXX 600 shed 4.43 points or 1.18 pct to 372.12.
       
"We can't really be too negative today," one Frankfurt-based trader said of the European markets."We've mastered a rally after last week's Fed decision and need some time to settle down, so losses liken today's shouldn't be dramatized," he added.
   
"Safe havens such as utilities are going very well and of course there is also hope that the arrival of RWE's new chief executive will have a dramatic effect," he said. The group's outgoing chief executive, Harry Roels, will step down on Sept 30.
   
In addition, the company said today its DEA unit has made a new oil discovery in Libya, equal to the daily production of 1,981 barrels.
   
According to a statement, RWE has a 32 pct stake in the exploration and production sharing agreement with state-owned National Oil Corporation. RWE's shares gained 1.05 pct, while those of peer EON added 0.78 pct.
   
Norwegian oil and gas producer Statoil ASA sank 1.65 pct, as the price of crude oil fell back as threats to US production from an encroaching storm receded and American companies pushed output back up.
   
Shares in BP fell 2.46 pct after the group's chief executive, Tony Hayward, told employees in Houston its third-quarter revenue is going to be "dreadful", the Financial Times reported.
   
Hungary's MOL gained 4.71 pct after Austrian OMV AG said it is in a position to make shareholders a cash offer of 32,000 forints per share under a proposed merger that would provide both companies with a "unique strategic opportunity".
  
Meanwhile, Czech power utility CEZ says OMV's approach has no impact on its earlier decision to buy a stake in MOL of up to a 10 pct. Shares in OMV fell 5.47 pct.
   
The airline sector was also in focus, with Alitalia rising 0.93 pct following reports Aeroflot and other companies are interested in the ailing Italian flagship company. Aeroflot's deputy managing director, Lev Koshlyakov, said the Russian airline is ready to offer 1 bln usd, or 700 mln eur, for Alitalia.
   
Also, in an interview in the French paper La Tribune, Air France chairman Jean Cyrill Spinetta said he is waiting for a call from his Alitalia counterpart, adding that other players are also interested in Alitalia.
   
Shares in Belgo-Dutch bancassurer Fortis NV were 4.61 pct lower after the group's two-for-three rights issue began, meaning that shares are trading without rights attached.

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Asian stocks mostly higher as Japan names PM; Australia sets record

SINGAPORE - Stock markets across Asia were mostly higher Tuesday as Japanese shares reversed early losses to close in the black while Australian indices pushed to record highs as surging metals prices fed a rally in the mining sector.
   
The world's biggest resources company BHP Billiton and rival Rio Tinto closed at their highest-ever levels as gold remained close to 27-year highs and the dollar lost more strength.
   
"The market has worked out that the lowest-risk sector is resources. It's that simple," said Charlie Aitken, head of institutional dealing at Southern Cross Equities in Sydney.
   
The S&P/ASX 200 closed up 31.5 points or 0.5 pct at a record 6,483.0, beating the previous record of 6,451.5 struck Monday. The benchmark index hit 6,500 points briefly for the first time to set a new intraday high of 6,509.6 in afternoon trading. The All Ordinaries index ended up 29.8 points or 0.5 pct at a record 6,490.9.
   
In Tokyo, the blue-chip Nikkei 225 Stock Average closed up 89.12 points, or 0.6 pct, at 16,401.73. The index was discounted by an estimated 76 points as some stocks went ex-dividend, according to Daiwa Securities. The broader TOPIX index edged up 14.76 points or 1.0 pct to 1,566.83.

In Hong Kong, China Eastern Airlines tumbled almost 15 pct to 7.42 Hong Kong dollars after Cathay Pacific and Air China said they were dropping a plan to increase their stake in the airline, China's third-largest. The Hang Seng closed down 0.5 pct at 26,430.
   
Singapore Airlines was up 20 cents at 19 Singapore dollars. The Singapore Straits Times index closed down 14.20 points, or 0.4 pct at 3,624.
   
China's benchmark Shanghai Composite Index closed down 59.13 points or 1.08 pct at 5,425.88. The Shanghai A-share Index fell 62.12 points or 1.08 pct to 5,695.29 and the Shenzhen A-share Index was down 14.75 points or 0.93 pct at 1,567.34.
   
Elsewhere, the Malaysian Kuala Lumpur Composite closed down 0.1 pct, the Philippines Composite closed up 0.2 pct and the Thai SET was down 0.5 pct. The Jakarta Composite lost 0.5 pct.
   
Taiwan and South Korea remained closed for public holidays.

Indian shares ended slightly higher Tuesday after a choppy session that saw the Sensex trading more than 100 points in the red at one stage.
   
The Bombay Stock Exchange's Sensex closed 53 points or 0.32 pct higher, at 16,899.45. The share market bellwether is now only 155 points shy of the 17,000 mark after crossing the 16,000 level just last week.
   
The National Stock Exchange's S&P CNX Nifty closed 0.13 pct higher at 4,938.85. HDFC Bank was the biggest Sensex gainer, closing up 3.7 pct at 1,396 rupees.

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Copper turns lower after touching fresh 2 month peak

LONDON - Copper turned lower after rising to a new two-month peak earlier, as traders shifted their focus to falling European equity markets and weakness in other commodities such as gold and oil.
   
The metal was also under pressure from worries over the state of the US economy, with traders eagerly awaiting August existing home sales and September consumer confidence data due out at 3.00 pm.
   
At the same time, however, falls in copper were limited by worries over declining London Metal Exchange inventories and impending industrial action in Peru.
   
At 1.57 pm, LME copper for three-month delivery was down at 7,950 usd per tonne against 8,040 usd at the close yesterday, after hitting a two-month peak of 8,070 usd earlier.
   
"What we see today is a function of the equity markets; copper specifically is more influenced by equity markets than by anything else," said Commerzbank analyst Eugen Weinberg.
   
He added weakness in oil and gold was not helping either and thinks supply-demand fundamentals in copper in any case do not justify prices above the 8,000 usd level.
   
The LME said in a daily report copper stocks held in its warehouses fell again, this time by 500 tonnes to total 131,275 tonnes. Stocks have been declining strongly in recent days.
   
Among other base metals, lead for delivery in three months fell to 3,375 usd per tonne from 3,475 usd, retreating after yesterday's strong gains, when the metal rose just 5 usd short of its all-time record of 3,500 usd.
   
Most analysts believe lead remains supported by low stocks, supply shortfalls due to closure of the Magellan mine in Australia, falling Chinese exports and restocking by battery manufacturers.
   
Nickel fell to 32,850 usd per tonne, basis three months, from 33,100 usd amid yet another daily rise in LME inventories, this time by 294 tonnes. Nickel stocks are about 10 times higher than their February level.
   
However, some analysts say rising demand from the stainless steel industry is putting a floor under prices. "Nickel continues to enjoy a reasonable period of strength as anecdotes of stronger stainless steel demand filter through the market," said JP Morgan's Jansen.
   
Amongst other metals, three-month zinc fell to 2,890 usd per tonne from 2,925 usd, aluminium was up at 2,435 usd per tonne from 2,409 usd, while tin was flat at 15,400 usd.

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